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Storage Stalemate Subdues Oil Prices

On the day that Lou Reed would have celebrated his 74th birthday, the oil market is taking a walk on the wild side ahead of EIA inventories. Here are ten things to consider on this first Wednesday in March:

1) The positive momentum seen in the oil market in recent days has been curbed by last night’s API report, which showed the biggest build to crude stocks in 11 months. Not only were total inventories a growlingly bearish number (of +9.9 million barrels), but Cushing inventories were said to have increased by a mammoth 1.8 million barrels. If a similar number is seen from the EIA report, it will propel stocks at the pipeline crossroads of the world to over 90 percent full.

2) If you wanted to find a bullish lining to this bearish report, gasoline inventories drew by 2.2 million bpd – as the impending peak of refinery maintenance season in the coming weeks means falling gasoline production, while gasoline demand continues to look robust. We should see a similar stance from the EIA report today: decent builds for oil and distillates, a decent draw to gasoline stocks. Related: A Shrewd Approach To Oil Investing

3) The crude build this week makes sense from a ClipperData perspective, as we saw PADD 3 imports tick higher last week. While we only saw 1 VLCC arrive from the Arab Gulf after a deluge seen earlier in February, there still remains a backlog of floating storage offshore in the U.S. Gulf. As of yesterday, there is over 10 million barrels of Arab Gulf crude waiting to discharge – which accounts for about a third of the total volume waiting.

4) While U.S. oil inventories push north of 500 million barrels, oil inventories on a global basis are pushing to a new record high. As the chart below illustrates, global inventories are already at a record 3 billion barrels. The IEA still sees a net stock build this year and next, while the EIA is of a similar view. It expects global oil inventories to rise by ~1 million bpd this year, and by an additional 0.3 million bpd in 2017.

5) Just as the API report steals the thunder from the EIA data, the ADP employment report attempts to do a similar thing to Nonfarm Friday’s official unemployment data. This morning’s ADP report showed 214,000 jobs were created last month, more than the consensus of 190,000. Friday’s report has a similar consensus of job creation, while the unemployment rate is expected to hold at the multi-year low of 4.9 percent.

6) The latest 8-to-14 day forecast from NOAA points a balmy end to a warm winter (viva the woolly worm!), set to stymie late-winter heating demand. As storage levels sit nearly 30 percent above the five-year average, and as the latest monthly data show natural gas production at its highest level since records began in 1973, it is no surprise that natural gas is testing levels not seen since last century (March 1999 is so last century). Related: Brazilian Oil Giant Petrobras Could Lose Its Most Valuable Assets

7) I remember writing a few years ago about how natural gas and retail gasoline prices had converged. The same thing has happened again, except this time around prices are about half of what they were back then. As natural gas plunders to new multi-decade lows, and retail gasoline prices begin their seasonal pre-driving season ascent, 1000 cubic feet of natural gas is cheaper than a gallon of gasoline.

(Click to enlarge)

8) We highlighted last week that we are not seeing materially higher Iranian oil exports showing up in our ClipperData, and this point has been affirmed by Mohsen Ghamsari, who is the director of international affairs at the National Iranian Oil Company. He has said that crude exports have been complicated by issues surrounding ship insurance, payments and financing, but that ‘for March, definitely our volumes are going to be higher than February … but it depends on the logistics situation and the banking channels‘. We shall avidly watch our data, and wait and see.

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I believe you meant 1 MMBTU HHV Natural Gas is the same price as retail gasoline. 1 ft3 of NG would be really really cheap.

I got the point though...

Matt on March 02 2016 said:

Eek! Good spot - is now corrected...

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